Substantive Change

✅ Short Definition

Substantive change refers to a material alteration in the information provided in a franchisor’s Franchise Disclosure Document (FDD) that significantly affects the franchise relationship. It requires prompt disclosure to prospective franchisees and often triggers re-registration or filing obligations. In franchising, a substantive change ensures that franchisees receive up-to-date and accurate information before making investment decisions.

🧾 Long Definition

Substantive change in franchising means a major modification to any important part of the franchisor’s disclosure documents or business operations that could reasonably impact a prospective franchisee’s decision to invest. Examples include changes in management, litigation status, fees, financial performance representations, or major franchise system modifications. When a substantive change occurs, franchisors are legally required to update their FDD and, in registration states, amend their state registration. Critically, after a substantive change, franchisors must re-disclose the updated FDD and restart the required waiting period under the "14-day rule," meaning the prospective franchisee must have the updated FDD for at least 14 full days before signing any binding agreement or paying any money. This process ensures that franchisees always make decisions based on the most current and accurate information available.

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📊 What Happens When a Substantive Change Occurs?

💡 Pro Tip: Common Mistakes Franchisors Make After a Substantive Change

• Delaying redisclosure: Waiting too long to provide the updated FDD can cause major compliance issues and stall sales.
• Failing to restart the 14-day clock: Franchisees must have a full 14 days with the updated FDD — no shortcuts allowed.
• Collecting money too early: No payments of any kind can be accepted until after the 14-day waiting period following redisclosure.
• Not updating registration states promptly: In states that require registration, an amendment must often be approved before continuing franchise sales activities.
• Misjudging whether a change is "substantive": When in doubt, treat important changes conservatively and seek legal advice to stay compliant.

🕰️ History and Usage

The concept of substantive change became prominent with the establishment of the Federal Trade Commission’s Franchise Rule in 1979, which emphasized full and accurate disclosure in franchising. As the industry expanded, regulators and courts recognized that merely providing an annual update was insufficient if significant events occurred mid-year. States like California and Minnesota led the movement by requiring mid-year amendments to franchise registrations. Today, detecting and disclosing substantive changes—and honoring the 7-day waiting period after redisclosure—is a standard and critical part of compliance protocols for all reputable franchisors.

❓ Five Common Questions About Substantive Change

• What qualifies as a substantive change in franchising? A substantive change is any significant update that could affect a prospective franchisee’s decision, such as fee increases, litigation, financial disclosures, or management changes.
• When must a franchisor disclose a substantive change? Disclosure must occur promptly through an updated FDD and, where required, an amended registration filing with regulators.
• Does a substantive change affect the 14-day rule? Yes, franchisors must reissue the updated FDD and allow prospective franchisees at least 14 full days to review before any agreements are signed or money is accepted.
• Can franchise sales continue during the substantive change review process? Sales must pause in registration states until the amended registration is approved; federally, sales must pause until proper redisclosure and the new 14-day waiting period is met.
• Who decides if a change is “substantive”? Franchisors must make a good-faith judgment, but regulators or courts can later review and challenge the determination if necessary.

📝 Examples of Common Usage for Substantive Change

• 'The franchisor promptly filed an amendment and reissued the FDD after a substantive change affected the franchise fee structure.'
• 'Increased initial investment costs were deemed a substantive change, triggering a restart of the 7-day waiting period.'
• 'Failure to disclose a substantive change in pending litigation delayed franchise closings until redisclosure requirements were satisfied.'

📌 Summary

Substantive change is a key compliance trigger in franchising, requiring franchisors to update their disclosure documents and re-disclose to prospects. Whenever a substantive change occurs, franchisors must ensure they restart the 7-day waiting period under federal law, giving prospective franchisees time to fully review the updated information. Timely and transparent handling of a substantive change protects both the franchisor and the franchisee, supporting a fair and lawful sales process.